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Pursuant to a congressional request, GAO discussed the Department of Defense's (DOD) financial management reform, focusing on the challenges and initiatives that are in place or planned.

GAO noted that: (1) challenges include DOD's inability to: (a) properly account for and report billions of dollars of inventory and property, plant, equipment, and national defense assets, primarily weapon systems and support equipment; (b) estimate and report material amounts of environmental and disposal liabilities and their related costs; (c) determine the liability associated with post-retirement health benefits for military employees; (d) accurately report the net costs of its operations and produce accurate budget data; and (e) provide adequate controls over sensitive computer information; (2) DOD has hundreds of initiatives under way to address these key challenges, with many of the planned fixes designed to result in a one-time, year-end number for financial statement purposes; (3) however, achieving an unqualified or clean financial audit opinion, while an important milestone, is not the final goal and must be accomplished through real improvements in the underlying financial management systems and operations that affect DOD's ability to manage its day-to-day activities effectively; and (4) the substantial efforts needed to work around DOD's serious systems and control weaknesses to derive year-end balances will not produce the timely and reliable financial and performance information DOD needs to manage its operations every day.